CRE Paper on Regulation Through Private Litigation
CRE is releasing its position paper on Regulation Through Private Litigation, a new escalation in the trend whereby private interest groups use the judicial system to achieve regulatory results they could not obtain through normal legislative or regulatory processes. Regulation Through Private Litigation occurs when private parties (i.e., without government sponsorship) use the court system as a backdoor way to regulate entire industries.

This dangerous new trend is represented by the recently filed lawsuit against Smithfield Hams, Inc., in which environmentalist groups are seeking to hold an individual company liable for the remediation of entire river systems in the State of North Carolina. The Smithfield Hams lawsuit is setting a precedent for a large number of other industries. The CRE position paper recommends specific strategies the new Administration could adopt to address this development.

Regulation Through Private Litigation - The Smithfield Hams Lawsuit as an Escalation of an Existing Trend

The lawsuit of Neuse River Foundation, Inc. v. Smithfield Foods, Inc. ("Smithfield lawsuit"), filed in August of 2000, represents a dangerous new development in the trend of "regulation through litigation. Prior to the filing of this lawsuit, "regulation through litigation" was thought to be limited to situations in which government officials contract with private law firms to prosecute litigation aimed at coercing private companies and industries to comply with regulatory goals not obtainable through normal legislative and regulatory processes.

The Smithfield lawsuit, however, represents a new escalation, in that private groups, acting in what they believe to be the public interest, are using litigation as a means to impose regulatory goals and draconian penalties on entire industries. In doing so, these private groups are usurping the policy-making authority that is supposed to be vested in and share by all of the American people acting through normal legislative and rulemaking processes. As such, the Smithfield lawsuit represents a threat to other industries that may next be targeted for such litigation, as well as to the integrity of the constitutional system of separation of powers.

A. The Smithfield Hams Lawsuit.

Overflow of hog lagoons operated by Smithfield overflowed, causing massive contamination of the water supply and of the ground.

Causing excessive amounts of nitrogen, phosphorus, zinc, and copper to enter North Carolina river basins.

Illegal spraying of untreated hog waste onto spray fields. Spray field size was inadequate and soil conditions were improper for such spraying.

Refusal to end open cesspool system in which massive amounts of hog waste is kept.

Failure to reduce number of hogs manufactured so as to prevent massive contamination of North Carolina river basins and rivers.

Maintenance of hog factories in a condition which violates Waste Management Plan and other requirements of North Carolina law.

Burial of thousands of dead hogs in sprayfields, knowing that the dead hogs were causing massive contamination of North Carolina river basins and rivers.

Causing hazardous chemical substances, including animal wastes, to leach downward and into groundwaters and surface waters.

Failure adequately to test for the presence of harmful and hazardous chemicals in the groundwater of Smithfield's premises.

Failure to take adequate clean-up/remedial measures.

Significantly, the Complaint does not mention any federal environmental statute by name. Instead, the Complaint obliquely references mediation efforts with North Carolina environmental officials, but asserts the following causes of action based on state law:

Negligence;

Trespass;

Strict liability;

Punitive damages; and

Unfair and deceptive trade practices.

The Smithfield plaintiffs are seeking the following damages:

Actual and punitive damages, to be fixed by a jury;

Treble punitive damages;

Complete costs of clean up and mitigation of all contamination in a number of rivers in North Carolina;

Injunctive relief prohibiting the activities; and

Attorneys fees and costs.

These damages - especially those seeking the remediation of entire river systems - are tantamount to adjudicative regulatory actions that would normally be undertaken by a federal or state environmental regulatory authority acting pursuant to and subject to the limitations set forth in the applicable statutes and regulations. Here, however, the plaintiffs are seeking to remove such regulatory authority from the Executive Branch to the Judicial Branch. The plaintiffs have acknowledged that they have filed this lawsuit to achieve a regulatory result that they were unable to obtain from the legislators or the regulators.

In terms of litigation strategy, the Smithfield plaintiffs' reliance on state law theories of recovery, and the manner in which the plaintiffs structured their claims generally can be explained by three factors:

Remedies. The remedies for violations of the federal Clean Water and Clean Air Acts are primarily limited to injunctive relief. State law, on the other hand, permits not only actual damages, but also punitive damages (which are requested as a separate cause of action). Therefore, the "bite" of a lawsuit seeking only federal remedies is limited, whereas the monetary damages awardable by a jury is practically unlimited.

Standing. The federal environmental statutes allow the filing of citizen suits, and associational standing is generally permitted. North Carolina apparently also allows for associational standing. However, what remains unclear is the relationship between standing and available remedies: Actual and punitive damages are based on the harm suffered by a specific named plaintiff. If that plaintiff is an association, such as an environmental group, it is unclear whether the standing to seek relief in the name of a river system or the public should also confer the right to recover punitive damages. This is a difficult issue that will have to be resolved by the Wake County Superior Court.

Preemption. The Complaint alleges the substance of violations of the federal Clean Water and Clean Air Acts without mentioning those laws by name. In other lawsuits it has been argued that when factual allegations are made which, if true, would constitute violations of a federal environmental statute:

The lawsuit should be subject to any limitations that would apply to a lawsuit brought explicitly pursuant to that statute; and

In consequence, the limited remedies permitted under the federal statute should preclude the award of broader remedies (e.g., punitive damages) allowable under state law.

Although the question has not been fully resolved, the courts generally find preemption where the complaint alleges that the source of the pollution is in one state, and the resulting damages in other. On the other hand, where both the source and the harm occur in the same state, and the complaint does not seek federal forms of relief, state law remedies will not be preempted.1

From this perspective, it is clear that the Smithfield plaintiffs have structured their lawsuit in such a way that a North Carolina company, acting solely in North Carolina, is alleged to have caused harm solely in North Carolina. The plaintiffs are clearly attempting to avoid any preemption that would deprive them of the ability to take advantage of state law claims and remedies.

2.

An Abuse of the Relationship Between Standing and Appropriate Remedies.

The federal environmental statutes allow a private plaintiff to file a "citizen suit" against a violator, even though that plaintiff may have suffered no greater harm than any other member of the community. The damage remedy extends beyond immediate damage to the particular plaintiff, so that the plaintiff can act as a public enforcer of a regulatory policy established through normal democratic legislative procedures.

However, in exchange for this new, congressionally carved-out right to sue on the public's behalf for damages not (or beyond those) actually suffered by the plaintiff, the available remedy is limited to the narrow, prospective injunctive relief expressly set forth in the statute; punitive damages are not listed and hence should not be allowed.

This is in contradistinction to private plaintiffs (e.g., the Smithfield plaintiffs) litigating causes of action and remedies recognized by state common law. These plaintiffs can seek punitive damages to the extent allowed by state law, but should only have standing to pursue such remedies to the extent that the individual plaintiffs have been individually harmed. In other words, common-law plaintiffs should not be allowed to seek common law damages on behalf of the public at large.

Put another way, a federal statutory claimant should be entitled to broader standing but narrower remedies; a state common law claimant should be entitled to more extensive state law remedies, but access to such remedies should be limited to the harm directly suffered by individual plaintiffs. Yet in the Smithfield litigation, the plaintiffs are seeking to have their proverbial cake and eat it too. The Smithfield plaintiffs are seeking both the broader standing and unlimited remedies. Moreover, they are seeking this to achieve a regulatory result that has not been agreed to by either the voters or environmental regulatory officials of North Carolina.

B. The Concept of "Regulation Through Litigation."

1.

Government-Sponsored Litigation Context.

Government-supported litigation involves the following elements:

A government official, often a state attorney general, establishes a policy objective involving the practices of a given industry that has not been validated by Congress through the legislative process.

The official determines that it can circumvent the lack of legislative authorization, it will work with private trial attorneys to prosecute lawsuits that would coerce the industry into complying with the agency's goals.

The plaintiffs and their government sponsors openly acknowledge that a key goal in filing the law suit is to achieve a stated policy or regulatory goal (e.g., forcing gun manufacturers to install "trigger locks" in all guns).

Often the official selects law firms that have contributed to him or his party.

Once the lawsuit settles, or once damages are awarded by the jury, the law firm pockets a significant portion of the proceeds, which were intended to benefit the allegedly injured public. In effect, the proceeds fund the contributions to the government official.

Although the strategy had existed for some time, "regulation through litigation" became the topic of public debate in February 1999, when then-Secretary of Labor Robert Reich announced in a famous statement to USA Today that the Clinton Administration would be using such tactics to circumvent the normal legislative and regulatory processes for establishing and implementing public policy. The Clinton Administration strategy attracted two key criticisms:

Separation of powers. Regulation through litigation improperly divests legislatures of their constitutional authority to enact laws and determine public policy, as well as the authority of regulatory agencies to implement such laws and policies through the exercise of lawful discretion. Instead, regulation through litigation vests the power to create and implement legal norms in a clique of trial attorneys and judges.

Political corruption. Regulation through litigation encourages political corruption to the extent that prominent campaign contributors and other political favorites are selected as the law firms to receive extravagant attorneys fees. The abuses in such cases have resulted in a number of investigations or prosecutions of the private attorneys who have filed such lawsuits.2

Abrogation of procedural rights. In a number of instances state legislatures have enacted laws abrogating longstanding procedural rights and defenses of defendants. In terms of their intent and effect, such laws are akin to bills of attainder and ex post facto laws. As such they violate the spirit of American democracy.

2.

Private Litigation Context.

The use of purely private litigation has not received the same notoriety as government-involved litigation, although private litigation strategies pose their own unique dangers. Regulation through private litigation is distinct from the government sponsored variety in the following respects:

Private litigation can be instituted without government action or involvement. Therefore, it involves less official corruption, but, on the other hand, is more difficult to control.

Private litigation is similar to, and potentially more dangerous than, government-sponsored litigation, in that:

Private litigants are openly seeking to achieve public policy/regulatory results in circumvention of democratic processes.

C. Implications for Other Industries.

Commentators perceive regulation through litigation are proceeding in waves, each driven by the avariciousness of state officials or trial attorneys. The first wave involved the famous tobacco litigation, which essentially established the paradigm. In the second wave, state and local government officials applied the tobacco litigation strategy to such industries as gun and lead paint manufacturers.3 The private party litigation addressed in this paper, and represented by the Smithfield lawsuit can be seen as the opening salvo in yet a third wave. This third wave could ultimately encompass virtually any industry that manufacturers products which have any suspected or proven environmental impact. Each wave builds on the previous one, and extends the abuses of the tort system that have come to be tolerated by the courts.

D. Possible Remedies to Limit Abuses of "Regulation Through Litigation."

Commentators perceive regulation through litigation are proceeding in waves, each driven by the avariciousness of state officials or trial attorneys. The first wave involved the famous tobacco litigation, which essentially established the paradigm. In the second wave, state and local government officials applied the tobacco litigation strategy to such industries as gun and lead paint manufacturers. The private party litigation addressed in this paper, and represented by the Smithfield lawsuit can be seen as the opening salvo in yet a third wave. This third wave could ultimately encompass virtually any industry that manufacturers products which have any suspected or proven environmental impact. Each wave builds on the previous one, and extends the abuses of the tort system that have come to be tolerated by the courts.

1.

Government-Sponsored Litigation Context.

Because government-sponsored litigation depends upon government involvement, it can be policed by higher levels of government, or through public opinion. Thus, federal agency abuses can be corrected through action by the highest levels of the Administration. To assist the new Administration in such efforts, The Center for Regulatory Effectiveness has drafted a proposed executive order that would cure abuses at the federal level. This executive order could also be used as a model for action at the state level.

2.

Private Litigation Context.

A key impediment to crafting a remedy is the "Federal judges and the trial lawyers, unlike elected officials, are accountable to no one, which makes the cause for tort reform at the state and federal levels even more urgent."4 Accordingly, the following broad strategies need to be developed:

(1.)

Executive Branch strategy under which the new Administration would:
(i) initiate a governmentwide debate regarding tort law abuses in connection with attempts to "regulate through litigation"; and (ii) issue executive orders directing the Justice Department to discourage present abuses of tort law, including:

Executive Order Calling on Justice Department to Assess and Report on the Extent to Which Federal Judges Are Violating Established Tort Law Principles.

Filing of amicus briefs. The Justice Department, federal agencies, trade associations, and other stakeholders would be encouraged to file amicus briefs on behalf of defendants in key lawsuits in which regulation-through-private-litigation issues are implicated.

(3.)

Compendium of legal arguments. A compendium of legal arguments would be developed for use in support of the aforementioned strategies. The arguments would provide legal support for the drafters of amicus briefs and proposed legislation. This legal analysis, which would take the form of a White Paper, would be a necessary component of the legislative, Executive Branch and litigation strategies, because Congress, the Administration and the courts cannot be asked to take action unless and until they are convinced that regulation through private litigation does in fact violate traditional, accepted tort-law and separation-of-powers principles.

(4.)

Legislative strategy aimed at enactment of tort reform legislation. Like the Clinton Administration's approach to healthcare reform, such a strategy should be based on a "piecemeal" approach, in which specific items on the agenda (e.g., legislation that would ensure that tort defendants can avail themselves of the common law requirement of subrogation) are enacted one by one.